Oil and gas lease?

[mudcat47537]

I have been approached by 2 different leasing companies about leasing my gas and oil rights on my property. They have been doing some of that directional drilling around here lately and it seems that they have been having some pretty good wells come in. Other than working on a pulling unit many years ago I don't understand how these things work really. We have 46 acres mostly woods with about 10 acres cleared hay field and pasture. The way it has been explained to me and the others around here is that they won't place any equipment on our property short term or long term. They are paying us $400 per acre for a 4 year lease with them having the option of extending another 4 years at their choice. If they do take the oil from under our ground then we get 15% of the royalties.

Does this sound about right? Anything I should watch out for make sure it is in the contract? We have a meeting with a lawyer next week to go over the contract and get his take on it.

 

[LD1]

I cant comment on prices or anything cause I have never dealt with it. But from what I have read and heard, you really do need a lawyer that specializes in this type of lease to go over everything in the contract. You are wise to be meeting with one, just make sure they know about mineral rights and they arent just some lawyer that dabbles into a little of everything, and just looking to make a quick buck off you, and dont really care one way or the other...

 

[Bocephous]

We've had two leases on our property and LD1 is correct. There may be factors involved that you would never think of on your own. The attorney, if they are good, also will have inside knowledge and experience working with the various gas companies in the area which will help with negotiations.

I would also give it some time; $400 an acre and 15% royalty is paltry compared to what you COULD potentially be paid. When the Marcellus Shale gas boom started around here leases were around $50/acre. Moved up to $160, then $750 rather quickly. Within a couple of months that had moved up to almost $3000/acre and eventually topped out around $5750/acre and 21% royalty. If you don't think that the royalty part is important check out a gas royalty calculator and see how much of a difference it could make in a monthly royalty payment.

Waiting will also give you the chance to compare different companies leases. The first lease we were offered was 15 pages long and was not landowner friendly. Three or so years later the final lease we signed was much shorter and to the point. The attorney we used had negotiated so many leases with this company that they knew the chances were good that he'd be looking at a lot of future leases. So the gas company had already adopted most of the clauses that he had fought for with his earlier clients.

 

[greasemonkeyok]

...Waiting will also give you the chance to compare different companies leases. ...

Not to say the advice Bocephous gave you is wrong cause it's not, so long as you understand that some landowners hold out for the big bucks, an operator drills a marginal well, and then no-body is interested in buying leases for any amount. There is no sure bet when you wait, just pure gambling.

The thing I see that would scare me the most is the four year option. Add that up and it is $800 for an 8 year lease. That's a long time and would lead one to conclude they are speculators wanting to sell your lease to an operator when and if the prices go up.

 

[Rustyiron]

My :2cents: keep learning, asking questions (like your doing), seek out professional advice and talk with any neighbors that may have been through this. And don't "hold out" too long. I just read somewhere that the congress has some bill in the works that will favor the gas co's. Something to do with older G/M rights.

 

[MacLawn]

Well, a good problem to have, mud! Now, if red clay got valuable, hey, I'd be in good shape!

 

[Fossil Farm]

There have been several posts about oil and gas leases on TBN. Search for them to get some pros and cons. A few things to consider -

- Do not believe anything the land agent tells you. He gets paid by getting your signature, then he is gone.
If it is not in writing, it was never discussed.
- Do not be in a hurry to sign anything. Getting a lawyer involved that has experience in oil and gas is a necessity.
If there is oil and gas on your property, it will be there in the future.
- 2 years is plenty of time for the oil company to drill. Do not go any longer. Be sure the contract spells out what
cancels the contract. Some companies have gone to court saying the contract is still in effect
because of extenuating circumstances and the landowner could not sign with another company.
- Be sure to have control over ingress and egress, location of tanks, erosion control measures, depth and placement
of gathering lines, fixing field tile, no use of water from a pond or stream on your property and things like that.
- Be sure that it says that no gas or oil transmission lines (which hooks in other wells on other properties) are
not part of the lease agreement.
- One item that has come up with the Utica gas formation, is who owns the oil and gas below the Utica. In the 1980's,
our farm was drilled down to the Clinton sands. about a depth of 3800 feet.
At that time, no one thought drilling would ever go deeper. Now there are arguments whether the 1980 lease
includes the oil and gas below the Clinton formation or if the landowner still has control over these deposits.

Good luck.

 

[forgeblast]

1. the landman works for the gas company they are not your friend they will do everything they can to lowball you.
2. get an attorney now, one who does oil and gas leases.
3. Natural gas leasing and production resources is a good resource
4. pipe lines and the wells are two different things, each require a different lease agreement.
I have a well at the top of my neighbors property and they are drilling under my property now, we signed an early lease and it cost us huge amounts of $$. It was in the early stages of the development, there were no oil/gas attorneys advertising.
Since that time I have found a great attorney to work for and for the all the info they have given me they have not charged me one penny.
5. most around here have 5 years to drill and then no automatic renewal. My leases is for 50 an acre, my neighbor 5280, on top of that I have delt with pipeline company, but they decided to put the pipeline somewhere else.

 

[dmccarty]

Also check for state resources for information.

There have been several meetings with state officials in my area about gas leases since gas might be in nearby areas. Not mine dang it. The meetings were to inform land owners of their rights as well as how to get a good price with a lease that protected them. I suspect there is information on the NC Extension website. You should ask you extension office for information.

You REALLY need an experienced lawyer to help you.

Later,
Dan

 

[mudcat47537]

WOW guys thanks for the info, you have all been a huge help!
I just figured I would get some good info here.